Bankrupt Detroit pays lawyers $1,000 an hour

“Tapped out” Detroit is facing a $380 million deficit, but the firm hired to restructure the city’s finances pays its lawyers $1,000 an hour because “that’s the going rate”.

The company hired to restructure Detroit’s financing, Jones Day,
has stacked up a $1.4 million bill, according to a report by
another law firm AM Law Daily, which obtained the figures. The
report added that lawyer David Heiman has billed the city
$149,419 for 153 hours of legal work since March, reports a WWJ,
a local TV channel.

AM Law Daily said that the 153 hour or six week total amounts to
more than one-third of what Jones Day is owed under their
contract to city authorities.

Charlie Langton, a legal analyst at WWJ - a CBS owned Detroit
based TV channel – said that the man who approved the $1.4
million fee used to work for Jones Day, raising the possibility
of a conflict of interest.

“Emergency manager Kevyn Orr approved the fees totaling about
$1.4 million, but what makes this even more controversial is that
the law firm getting all the money is Jones Day – that’s Orr’s
former law firm. Oh, you want some more controversy? That $1.4
million is just for six weeks of work,” Langton said.

“Detroit is going bankrupt and that’s the going rate,” he
added.

Orr is a bankruptcy expert who was hired in March by the state to
sort out Detroit’s perilous finances, which are running into a
$380 million deficit, but which in the long-term could hit $17
billion. Orr is asking bond owners to accept steep mark downs on
what they’re owed as a short term way of easing the debt burden.

The report details that the costs were connected to advice on
restructuring, labor and pension analysis and chapter 9 advise
relating to the US Bankruptcy Code. Orr says that top lawyers are
needed because of the amount of money that’s at stake and has
defended the fees he’s charging.

“That advise may come in in handy because on Wednesday, Kevyn
Orr must deal with the demand from the police and fire pension
board to force the city to pay an unpaid $30 million pension
contribution,” Langton said in relation to Orr’s comments on
the fees his lawyers were receiving.

After a closed meeting with creditors last month, Orr said that
Detroit is “tapped out” and that there is a 50-50 chance the city
will file for municipal bankruptcy.

Orr was hired back in March to save the city from complete
bankruptcy and in May he released a report showing that the city
was in a far worse sate than many people thought.

“There’s probably no city that’s more financially challenged
in the entire United States,” Michigan Governor Rick Snyder
said in March, referring to the Michigan city of Detroit.

The multiple problems of mismanagement of the city’s services,
loads of liabilities and an ever growing deficit are compounded
by widespread blight and ever falling economic activity.

Although Detroit covers a larger area than Boston, Manhattan and
San Francisco combined it has 60,000 vacant plots of land and
78,000 vacant buildings of which 38,000 are thought to be in a
potentially dangerous condition. Since Detroit’s heyday as the
center of US car production in the 1950’s its population has
shrunk by 60%.